What is inheritance tax charged on?
Transfer of value, of chargeable property and by chargeable person
When does a charge to IHT arise?
On death, on lifetime gifts where donor dies within 7 years and on some lifetime fights which are taxed at the date of the gift
What is a transfer of value? IHT
A gift of any asset which results in a reduction in the value of the donor’s estate.
How is the transfer of value calculated? IHT
Value of estate before gift less value of estate after gift
When someone dies, what do they become liable of?
- Value of all of the net assets in their estate
2. Any lifetime gifts made in the seven years provided they are not exempt
What is the definition of exempt transfers? IHT
A gift that is specifically deemed to be exempt from IHT
What is the definition of potentially exempt transfers? IHT
A gift by an individual to another individual
What is the definition of chargeable lifetime transfer? IHT
CLT will be a gift into a trust
If an individual gives an exempt gift is gifted during an individuals lifetime, is there IHT payable?
No
If an individual gives an potentially exempt gift is gifted during an individuals lifetime, is there IHT payable?
No
If an individual gives an chargeable lifetime transfers gift is gifted during an individuals lifetime, is there IHT payable?
IHT calculated using the lifetime rates of tax
If an individual lives 7 years, is there any IHT payable?
No
If an individual does not live 7 years, is there any IHT payable on exempt benefits?
No
If an individual does not live 7 years, is there any IHT payable on potentially exempt benefits?
The PET becomes chargeable on death for the first time
If an individual does not live 7 years, is there any IHT payable on chargeable lifetime transfers?
Possibly extra IHT, calculated using the death rates of tax§
How are gifts into trusts treated? IHT
CLTs
What are lifetime gifts only exemptions and reliefs?
Small gifts exemption
Marriage exemption
Normal expenditure out of income
Annual exemption
What are lifetime gifts and death estates exemptions and reliefs?
Inter spouse exemption
What is the small gifts exemption?
Less than £250 to one person in a tax year
What can a parent give as a marriage gift?
£5,000
What can a grandparent give as a marriage gift?
£2,500
What can a groom or bride give as a marriage gift?
£2,500
What can anyone else give as a marriage gift?
£1,000
A lifetime transfer will be exempt if it can show that the gift is:
Is made as part of a person’s normal expenditure out of income, and does not affect the donor’s standard of living.
What is the annual exemption available against in IHT?
Lifetime transfers
What is the annual exemption for IHT?
First £3,000
Can annual exemption for IHT be carried forward?
One year only and used after the year brought forward
How should the annual exemption be calculated for IHT?
Applied chronologically to the first gift even if a PET and never becomes chargeable
How is a transfer between spouses treated for IHT?
Exempt
What is the nil rate band for IHT?
£325,000
If the trustees of the trust (i.e. the donee) agree to pay the tax, how is this treated for IHT?
Gift is referred to as a gross gift and pay 20%
If the donor agrees to pay the tax, how is this treated for IHT?
Net gift, which is grossed up and then 25% is tax
When the exam does not specify who pays the tax?
Assume the donor does
What is the date of payment between 6th April - 30th September?
30th April the following year
What is the date of payment between 1st October - 5th April?
Six months after the end of the month of the CLT
How do you calculate death IHT?
- Identify gifts within seven years
- Calculate gross chargeable amount and tax paid
- Calculate the NRB after deducing gross chargeable transfers, use NRB at death
Include PETS - Calculate death tax 40%
- Taper relief
- Deduct lifetime IHT paid
- State who will pay, and due date of payment
What type of mortgages are deductible on the death estate?
Repayment and interest only mortgages
What is included on the death estate pro forma?
property, businesses, stocks and shares, government securities, insurance policy proceeds, cars, chattels, debts due, cash at bank - less debts due by, taxes and funeral expenses
When are debts deductiable?
Outstanding at date of death and have been incurred for valuable consideration or were imposed by law
When is death tax due?
Earlier of six months after the end of the month of death or on delivery of the account of estate assets to HMRC
When a husband dies, what can the partner use of the NRB?
The remaining amount but at NRB in year of second death (i.e. do a percentage)
When must a claim to use your husbands NRB be made?
later of 2 years after second death, or 3 months after the executors starting to act
